IEEJ：September 2016ｃ○ IEEJ 2016

Special Bulletin
A Japanese Perspective on the International Energy Landscape (289)September 16, 20162015 World Energy Investment Shown in IEA Report
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn September 14, the International Energy Agency published a report titled “WorldEnergy Investment 2016.” The IEA provides numerous reports on energy problems around the world,
including the flagship publication of World Energy Outlook. However, the latest one is the first IEA
report focusing on world energy investment. This report comprehensively analyzes energy
investment realities globally and by region, by energy source and by sector, based mainly on data for2015. It also analyzes the impact of energy price falls on investment and clean energy investment forclimate change measures. The following summarizes key points of world energy investment asindicated in the IEA report.
The first point attracting attention is that world energy investment in 2015 declined by 8%from the previous year. Usually, energy investment expands as the energy market (demand) grows.
Investment is required for production, transportation, conversion, distribution and consumption ofeach energy source. Without such investment, energy could not be used at present and in the future.
The world’s primary energy demand growth in 2015 was limited to around 1% due toglobal economic growth deceleration. However, demand was still expanding. In such situation,world energy investment in 2015 totaled $1.83 trillion, posting an 8% fall from the previous year as
noted above. The largest factor behind the decline was a substantial drop in upstream oil and gas
investment. In particular, a decline in investment in the United States was influential. It may beneedless to say that the investment decline directly reflects the grave impact of the crude oil priceplunges seen since the second half of 2014 on energy investment. The drop indicates how great theimpact of energy price changes on investment is.
Second, China replaced the United States as the world’s largest energy supply investor due
to the substantial drop in U.S. oil and gas investment. While energy demand growth in China has
been decelerating under the “New Normal” economy, electricity sector investment has still beenexpanding. As a result, China’s energy supply investment in 2015 reached $315 billion, accountingfor 17% of the global total. In the United States, which remained the world’s largest investor inenergy supply for three years on end before reducing oil and gas investment in 2015, energy supply
investment came to $281 billion, capturing 15% of the global total. Following China and the UnitedStates in the energy supply investment ranking were the European Union (accounting for $141
billion or 8% of the global total), Russia ($83 billion or 5%) and India ($66 billion or 4%). Aninteresting point is that the five largest investors commanded as much as 48% of the global total.
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Third, oil and gas investment accounted for 46% of the global total energy investment in2015. Upstream oil and gas investment alone totaled $583 billion, accounting for 33% of the global
total. Investment in fossil fuels including coal captured 55% of the global total. Important is the factthat fossil fuel investment captures a great part of total energy investment in 2015. As noted above,however, oil and gas investment declined substantially due to oil price plunges, leading the fossil
fuel sector to reduce its share of the global total energy investment from 61% in 2014 to 55%. In
place, the non-fossil energy sector expanded its share. It is noteworthy that while oil price plunges
had a very great impact on fossil fuel investment, there was an investment shift from fossil fuels tonon-fossil energy as a concurrent.
Global upstream oil and gas investment in 2015 totaled $583 billion, posting a large
decline of 25% from the previous year. The investment in this sector is expected to drop again by
24% in 2016. We must pay attention to the fact that the substantial reduction is attributable primarily
to a cut in unit investment costs. While upstream oil and gas investment in North America including
the United States in 2015 plunged to less than half the 2014 level, such investment was robust in theMiddle East and Russia, where development and production costs are relatively low. While private
sector companies substantially reduced upstream oil and gas investment, state-run companies in suchregions as the Middle East and Russia expanded such investment.
Fourth, electricity sector investment was robust. Investment in the power generation sector
in 2015 totaled $420 billion and that in the network sector, including electricity transmission anddistribution, came to $260 billion. The two sectors’ combined investment accounted for 37% of theglobal total energy investment. Particularly, investment in the network sector scored a steep increaseof 14% from the previous year. Renewable energy power generation investment reached $288 billion,
accounting for 70% of the total power generation sector investment. Nuclear power generationinvestment, including massive investment by China, rose to a 20-year high of $21 billion.
Investment in non-fossil electricity sources was thus robust. Meanwhile, investment in natural gas
power generation plunged by 40%. Investment trends thus differed from electricity source to source.
The IEA report noted that most of the power generation investment came in non-deregulated markets
or markets having mechanisms to manage investment recovery risks. This point is also interesting.
Fifth, the report importantly indicates that investment in sectors contributing to carbon
emission cuts, including $313 billion in renewable energy and $221 billion in energy consumption
efficiency improvement, accounted for a large weight. Combined investment in nuclear powergeneration, renewable energy and energy conservation captured 30% of global energy investment in2015. While investment priority is given to fossil fuels, with fossil fuels accounting for a large partof energy supply, investment in non-fossil fuel sectors is steadily implemented even at present. As aresult, the global energy supply-demand structure will move in the direction of lower carbonemission. However, the report indicates that the achievement of the so-called 2°C target would bevery challenging under the present energy investment conditions and pace, despite steady progress inlower carbon emissions.
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Energy investment determines the energy supply-demand structure at present, and more
importantly, for the future. We will have to closely watch how energy investment will be
implemented under the influence of energy prices, energy and environment policies, and advanced
technology development.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

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